US moves to deprive Russia of its most favorable trade status

WASHINGTON – The United States moved on Friday to sever normal trade relations with Russia – and to ban imports of seafood, vodka and diamonds – as it joined other countries in escalating economic pressure on Moscow over the Invasion of Ukraine.

“As Putin continues his ruthless assault, the United States and our allies and partners continue to work closely to increase economic pressure on Putin and to further isolate Russia on the world stage,” Biden said.

The House speaker said stripping Russia of its trade status as a preferred country would require a vote in Congress, which the House will consider next week.

Nancy Pelosi

(D., California). A spokesman for Senate Majority Leader Chuck Schumer (DE, NY), said the Senate is working on an agreement that can be passed quickly.

The proposed legislation would end the US policy of treating Russia as a most favored nation, a key WTO principle that requires member states to ensure equal tariffs and regulatory treatment for other members.

On Friday, other countries also announced new efforts to isolate Russia.

Group of Seven Rich Democracies She vowed to reduce the West’s trade with Russia and restrict its access to financing from international financial organizations such as the International Monetary Fund and the World Bank.

European Commission President Ursula von der Leyen said the European Union The import of major commodities in the iron and steel sector will be prohibited From Russia, which said it would deprive the Kremlin of billions of euros in export earnings.

The European Union is by far the most important destination for Russia’s exports, buying 41% of the total value in 2019, followed by China at 13.4%, according to the World Trade Organization.

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Ms von der Leyen said the EU would also ban the export of luxury goods to Russia.

“Those who support Putin’s war machine should not be able to enjoy their lavish lifestyle while bombs fall on innocent people in Ukraine,” she said.

The White House policy statement said the US action would deprive Russia of more than $1 billion in export revenue, adding that the US “retains the authority to impose additional import bans as appropriate.”

On Friday, the United States also imposed restrictions on exports of luxury goods, such as watches, vehicles and jewelry, to Russia and Belarus. The White House said the value of US exports of products covered by the restrictions is approximately $550 million annually.

The Russian embassy in Washington did not respond to a request for comment.

The United States still has other measures to increase pressure on Russia. And it could widen sanctions on the banking system, including cutting Gazprombank, a vital part of Russia’s energy exports, from access to US dollars.

Another option: implement a comprehensive ban on exports to Russia, beyond the already banned or severely restricted sectors of defence, navy, luxury goods and sensitive technology.

Crabs – snow crabs and red crabs – account for the bulk of newly banned imports into the United States, accounting for $1.1 billion of Russia’s $1.2 billion in seafood imports in 2021.

Since Russia invaded Ukraine at the end of February, the United States and allied countries have imposed severe sanctions on Russia. Shelby Holiday of the Wall Street Journal delves into how these sanctions affect everyone from President Vladimir Putin to ordinary Russians. Photo: Pavel Golovkin/The Associated Press

A spokeswoman for the National Institute of Fisheries said the importers group will work with the administration to implement the latest import ban on seafood.

Russia Famous for vodkaBut Americans drink relatively little of the distilled spirit exported from that country. Russia exported $21 million worth of vodka to the United States in 2021 or about 1.4% of vodka imports to the United States. The United States imported $276 million worth of diamonds from Russia in 2021, most of which were for non-industrial use.

Overall trade between the United States and Russia is modest, with mutual trade between the two countries reaching $36.1 billion in 2021, making Russia the 23rd trading partner of the United States, according to Census Bureau data.

Of this amount, $29.7 billion of Russian products were imported into the United States, including fuel, precious metals, iron and steel. Imports are only 6% of US purchases from China in 2021.

Aside from oil and gas, Russia is not a major player in global trade. However, analysts say the combined effect of other countries will be significant.

“The more countries that take this action, the more effective the sanctions will be,” said Inoue Manak, a fellow for trade policy at the Council on Foreign Relations. “If the allies coordinate the removal of Russian trade concessions, the impact on the Russian economy will be very severe.”

Management already has Announced an embargo on Russian oil, coal and gaswhich makes up nearly 60% of total US imports from the country.

Ed Greiser, a former official in the Office of the United States Trade Representative who is now vice president of the Institute for Progressive Policy, a centrist-leaning democratic think tank, said the energy import ban could have an inflationary effect due to Russia’s massive presence in the country. global energy market.

He said it was unlikely that other measures announced on Friday would have a significant impact on consumers “because Russia’s trade with the world is not very big”.

Outside of energy products, other raw materials and goods, which make up a large portion of remaining US purchases, Russia will continue to enjoy duty-free or non-significant duty-free treatment even after the MFN ends.

The tariff rate on specialty metals such as uranium and palladium, another large import category that includes important feeds for some US industries, will remain zero even if Russia’s situation changes.

That’s because the tariff rate list, which is used for countries that do not have MFN status, is designed to reduce tariffs on US manufacturers who rely on imported materials, while charging higher rates on consumer products.

The loss of the most favorable trade status means that some Russian imports will be subject to higher tariff rates currently imposed on North Korea and Cuba. The United States imports relatively little from Cuba, and nothing from North Korea.

The proposed legislation also calls for Russia’s expulsion from the World Trade Organization. This is a symbolic gesture because the move will require a time-consuming effort to win the approval of more than 100 member states.

Meanwhile, Senate Finance Committee Chairman Ron Wyden (DE, Oregon) is proposing changes to the tax code aimed at punishing the Russian government and imposing sanctions on Russians who own American assets.

His plan would deny foreign tax credits and certain discounts to US companies that generate income in Russia and Belarus, adding those countries to a list that includes Iran, North Korea, Syria and Sudan.

“If American companies choose to continue paying taxes to Russia — taxes that fund the bombing of hospitals for women and children — they should do so without a penny of help from American taxpayers,” he said.

Mr. Wyden’s plan would also deny US-Russia tax treaty benefits to sanctioned individuals and entities and give the Treasury the ability to add more people to that list. The change will effectively increase taxes on dividends and cross-border interest payments.

Other actions the United States could take include sanctions on sectors such as shipping and insurance, and blacklisting companies and government officials. Late Friday, the Treasury Department announced a new round of financial sanctions targeting “Russian elites and the Kremlin, oligarchs, and Russia’s political and national security leaders” who have supported Mr. Putin.

write to Yuka Hayashi at [email protected], Alex Leary at [email protected], and Anthony Debarros at [email protected]

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